Faster job cuts expected at Debenhams despite store closure denial

Debenhams shares fell a further 3% on Friday morning after a 15% drop on Thursday following the retailer’s gloomy Christmas trading update that was released a week earlier than expected.

Debenhams

The firm had put a brave face on weak sales that were driven by the need to discount heavily. But it couldn’t make a profit warning, which was the result of these markdowns, sound anything other than bad.

And not only will profits be less than expected but speculation is now raging about whether it will choose to close more stores than originally planned. Meanwhile there is also talk that major shareholder Mike Ashley/Sports Direct could bid for the firm.

Sports Direct holds a 21% stake in the retailer and also has concessions in its stores. With Ashley’s business on a current drive to move further upmarket, a much closer relationship with Debenhams might seem attractive, despite its declining fortunes.

SPOTLIGHT ON STORE CLOSURES

But it’s Debenhams store closures and the associated job cuts that are most in the spotlight at present. As analysts began to question the retailer’s strategy immediately after the update came out, Debenhams moved to assure them that there are no plans to close more stores than the 10 already being looked at. However, news that it would look again at the stores portfolio at the end of both the first and second halves meant that the assurance was less than reassuring.

DebenhamsDebenhams had announced up to 10 store closures when it unveiled its new strategy earlier last year. The firm has already confirmed that two lossmaking stores (in Farnborough and Eltham) will close and that news hadn’t exactly been a surprise. The Eltham store in South East London, for instance, is relatively small and struggles to compete with fashion specialists or larger department stores in nearby shopping destinations.

But with the firm saying during its trading update that it would “accelerate” its plans, the prospect of more and faster job cuts is looming. And those half-yearly portfolio reviews could multiply the number of job losses and closures in the future if the firm’s performance doesn’t improve.

PRICING PROBLEMS

Analysts were unconvinced by the few upbeat notes in the trading update saying the company’s Christmas season showed the firm in a downward spiral of price cuts.

Sofie Willmott, Senior Retail Analyst at GlobalData said it “demonstrates the ongoing struggle of department store retailers, whose seemingly never-ending promotions are contributing to their own downward spiral, leaving shoppers unlikely to buy items at full price.”

And she added that given the barrage of discounted products available in the lead up to Christmas, it’s no surprise that Debenhams’ end-of-season sale produced disappointing results, despite “further markdown investment”.

“Discerning consumers with squeezed budgets are looking for value for money and by constantly reducing the price of goods, Debenhams is damaging customer perception of value, discouraging shoppers to buy from the retailer,” she believes.

House of Fraser’s Chinese owner is planning to sell its majority stake in the under-performing department store chain to another Chinese entity, it confirmed on Tuesday. But it will keep a large holding in the retailer.